ATO issues GST guidance for retirement villages

The ATO has reminded purchasers of operating retirement villages that if the purchase was made as a GST-free supply going concern, increasing GST adjustments should be expected.

If an operating retirement village was purchased with the intention that it was in operation and making a profit, an increasing adjustment for GST would occur.

According to the Tax Office, this increase would occur if the purchaser planned to make input-taxed supplies through the village, such as if the accommodation was leased to residents of the retirement village.

The increasing adjustment to be expected was worked out as 10 per cent of the sale price multiplied by the proportion of non-creditable use.

It was noted by the ATO that the input tax supplies made by the purchaser were considered to be a non-creditable use.

“The sale price will include the value of any resident loans (also known as in-going contributions) if you take on the repayment obligation to the residents,” the ATO said.

“If the proportion of non-creditable use changes over time, you may need to make additional increasing or decreasing adjustments on your BAS.”

For example, Wren acquired an established operating retirement that made input taxed supplies of accommodation, as a supply of a going concern.

The village also leased small retail spaces to a cafe, hairdresser and doctor surgery which made up 1 per cent of the taxable supplies made by the village.

Wren acquired the village for $1.2 million which included Wren also taking on the repayment obligation for ongoing resident contributions valued at $10.5 million.

The Tax Office said in this instance, Wren would continue to supply input taxed accommodation in the independent living units which would mean the village would be used for a non-creditable use and would be subject to an increasing adjustment.

“The sale price will be $1.2 million plus the value of the residents’ in-going contributions of $10.5 million. The non-creditable use will be 99 per cent (as one per cent will be taxable leases),” the ATO said.

This means the additional GST payable by the purchaser will be, 10 per cent multiplied by the sale price multiplied by the non-creditable use.

Therefore, 10 per cent x 11.7 million (1.2 million + 10.5 million) sale price x 99 per cent (non-creditable use) = $1.158 million.